Calculate the quantities demanded of gourmet coffee

Assignment Help Microeconomics

Reference no: EM133426077

Question: Consider a hotelling linear city model with 500 consumers with locations uniformly distributed on a street represented by the interval [0, 1]. There are two gourmet coffee stores which are located at x= 0 (store 1) and x= 1 (store 2). Suppose each consumer will buy exactly one unit of coffee from the store for which price plus transportation cost is lower. Assume that the consumers willingness to pay is significantly higher than the prevailing prices, so that it is optimal to buy. The transportation costs are $5 per unit distance and the coffee stores have constant marginal cost of MC=$6. The coffee stores compete in prices.

a) Given the stores' prices p1 and p2, calculate the quantities demanded of gourmet coffee from the stores.

p1 + 5 * x* = p2 + 5 * (1 - x*)

x* = (p2 - p1 + 5) / 10

So demand functions would be

q1 = 50p2-50p1+250

q2 = 50p1-50p2+250

b) Find the Bertrand equilibrium prices.

This part I am not sure. Wouldn't we just find the MR of Q1 and Q2 and set = MC????
Please solve part B and C

c) Illustrate that the coffee stores can increase their profits if they collude and raise their prices with one example.

Reference no: EM133426077

Questions Cloud

Create an application for taxi owner : Create an application for taxi owner. This app will be used by passengers to pay the taxi fare . The minimum taxi fare acceptable is R20 from UMP to Mbombela

Ride-hailing be subject to single regulatory regime : Should taxis and ride-hailing be subject to a single regulatory regime, or whether is there a case for differentiation? If so, provide an example.

Determine the base price for the classic european home : Write an Excel formula in cell Models!H3 to determine the base price for the Classic European home. This formula should also work when you copy it down

What is the url for the code of ethics that you found : What is the URL for the code of ethics that you found? To what organization does it apply? Why does this organization exist? Do you believe this is

Calculate the quantities demanded of gourmet coffee : Illustrate that the coffee stores can increase their profits if they collude and raise their prices with one example.

Key issues in working with racial-ethnic minority families : What might possibly be advantages of family members arranging a meeting between their son or daughter and a prospective mate they have selected?

Explain what social awareness is : Explain what social awareness is. What are the characteristics a person with social awareness displays? Why does social awareness matter?

Which compexplain a key difference between the risk-v : Which comp Explain a key difference between the RISK-V and 80x86 processor architectures?uter architecture is considered open-source?

What if your factory hires children so they can make money : What if your factory hires children so they can make money to provide for their family, buy an education, and stay off the streets and away from gangs

User Account

All Pages